On December 1, Ross Mayfield held a press conference inside World of Warcraft. In real life, Mayfield is the CEO of SocialText, a Palo Alto start-up offering online collaboration software for enterprise-scale businesses. In World of Warcraft, a 3D game that serves as a kind of alternate online universe, he's a sword-wielding knight named Kalevipoeg. More than 30 bloggers and reporters attended the press conference, using their own sword-wielding avatars, and no one was allowed to ask Mayfield a question without challenging his virtual knight to a virtual duel.

When Mayfield first announced this online Q&A session, via his personal blog, it was no more than a joke. He was poking fun at companies like Dell and Sun, which had recently held press conferences inside Second Life, the online virtual world that has an awful lot in common with World of Warcraft. Much to his surprise, readers took him seriously, and more than a few asked if they could join in. So he went ahead with his World of Warcraft press conference, and the press actually came, including a mainstream business reporter who soon published a story in the Austin American-Statesman.

To the surprise of many, the business worldthat's the real business worldhas fallen head over heels for Second Life and other virtual worlds. Last May, BusinessWeek ran a Second Life cover story. In October, Reuters opened a virtual news bureau inside the service that had veteran tech journalist Adam Pasick trolling for stories with help from a digital alter ego. And shortly thereafter, as some were beginning to wonder whether the service was overhyped, Fortune senior editor David Kirkpatrick ran a story called "No, Second Life Is Not Overhyped."

Companies like Dell and Sun aren't just holding press conferences inside this alternative universe. They're building virtual "campuses," 3D Web sites where they can advertise their productsor even sell them. Cisco holds interactive seminars inside Second Life, complete with video feeds of featured speakers, while IBM uses the service for internal communication, with far-flung employees chatting away via digital avatars. The company claims that more than 3,000 IBMers have participated in these virtual-world chats, including everyone from marketing types to software developers.

"We're at the beginning of the next evolution of the Internetthe 3D Internet, as we like to call it," says IBM's Michael Rowe, whose official title is senior manager, 3D Internet and Virtual Worlds. "If Web 2.0 is a place where everyone becomes a producer, everyone becomes a content creator, the 3D Internet gives us a whole new level of social interaction in this collaborative space."

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But the question remains: Is Second Life overhyped? If you talk to companies that have set up shop in this virtual worldor if you read about Second Life in the pressyou're inevitably told how popular it is. "It's hugely popular," says Rowe. "The growth curve is enormous." More often than not, you'll hear that Second Life boasts millions of users. But the truth of the matter is that no one knows how many people are using the serviceother than Linden Labs, the company that hosts Second Life. According to Clay Shirky, a faculty member in the Interactive Telecommunications Program at NYU who's made a four-month study of Second Life's audience, the number of regular users is well under 200,000.

Virtual worlds may indeed play a big role in the future of the Internet. But for the moment, the talk far exceeds the actual worth of these servicesat least in business terms. If fewer than 200,000 people are regularly using Second Life, it's not the best marketing tool. And though virtual worlds are certainly a means of long-distance communication, it's yet to be seen whether this makes sensein the long termfor anything other than fun and games.

So many companies are entering Second Life because it's the thing to do, because the press gives virtual worlds so much attention. "The biggest benefit of Second Lifefor companiesis the media attention," says Heather McConnell, an account executive with the international PR firm Hill & Knowlton, who's become the in-house virtual worlds expert, educating clients on these new age services. "The media is generating so many stories about companies entering Second Life, and that's a real advantage." But this sort of press coverage lasts for only so long. In the end, virtual worlds aren't viable business tools unless they offer something more, and whatever the claims of Cisco, IBM, or Fortune, it's hard to tell if they actually will.  next: The Massively Multiplayer Online Commerce Engine